05/05/2026
The tax landscape in Kenya as of May 2026 is defined by a strategic shift: the government has moved away from raising tax rates—wary of a repeat of the 2024 protests—and is instead focusing on aggressive digital enforcement and closing loopholes.
Here are the critical changes and rules currently in effect or under proposal:
1. Residential Rental Income Tax (RRI)This is the biggest headline for 2026. The Kenya Revenue Authority (KRA) is ending the "voluntary" nature of rental tax. Mandatory Registration:
Landlords must now register on the Electronic Rental Income Tax System (eRITS). The Threshold: If you earn between Sh288,000 and Sh15 million annually from residential rent, you are subject to a flat tax of 7.5% on gross receipts.
Monthly Filing: Returns and payments must be submitted by the 20th day of the following month. No Deductions: Under this simplified regime, you cannot deduct expenses like repairs or mortgages from your tax bill.
2. The Finance Bill 2026: "Compliance, Not Hikes"Treasury CS John Mbadi has confirmed that the 2026 Bill avoids increasing standard tax rates. Instead, it introduces "compliance-driven" measures:
Mitumba (Second-hand clothes): A new 5% deemed profit tax on imported second-hand clothing, payable at the point of entry. e-TIMS Expansion:
The electronic invoicing system is being pushed to all professional services (lawyers, consultants, etc.) to ensure every transaction is visible to the KRA in real-time.
Multinational Tax: Full implementation of the Domestic Minimum Top-Up Tax, ensuring large multinational corps pay an effective tax rate of at least 15%.
3. Payroll and NSSF AdjustmentsIf you are an employer or a high-earning employee, your "take-home" pay changed earlier this year: NSSF Phase 4: Effective February 2026, the Tier II upper earnings limit was raised to Sh108,000. This increased the mandatory NSSF contributions for those in the higher income brackets.
4. Digital and Specialized Taxes (From Finance Act 2025)Several measures that became law in late 2025 are now in full swing:
Digital Asset Tax (DAT): The rate was halved from 3% to 1.5% to encourage the crypto and digital asset sector.Software Royalties: The definition of "royalty" now includes software distribution, meaning distributors making regular payments for software use are now subject to withholding tax.
Per Diem Increase: On a positive note, the tax-free daily subsistence allowance (per diem) for employees was increased from Sh2,000 to Sh10,000.
The KRA is now using data integration between banks, utility companies (Kenya Power), and the land registry to identify non-compliant landlords and businesses. Automated penalties for late filing (Sh2,000 per month) are now standard on iTax.
